Assured Guaranty Ltd. Reports Results for Fourth Quarter 2016 and Full Year 2016

Net income was $197 million, or $1.49 per share, for fourth quarter 2016, compared with $429 million, or $3.03 per share, for fourth quarter 2015. Net income for FY 2016 was $881 million, or $6.56 per share, compared with FY 2015 net income of $1,056 million, or $7.08 per share.

Operating income1 (a non-GAAP measure) was $139 million, or $1.05 per share, for fourth quarter 2016, which includes, for the first time, a $16 million, or $0.12 per share, gain related to the effect of consolidating financial guaranty variable interest entities (FG VIE consolidation). Operating income1 was $130 million, or $0.92 per share, for fourth quarter 2015, which was revised to include a $13 million, or $0.09 per share, gain related to FG VIE consolidation.

Operating income1 for FY 2016 was $895 million, or $6.68 per share, which now includes a $12 million, or $0.10 per share, gain related to FG VIE consolidation. Operating income1 for FY 2015 was $710 million, or $4.76 per share, which was revised to include an $11 million, or $0.07 per share, gain related to FG VIE consolidation.

Non-GAAP operating shareholders' equity1 per share and non-GAAP adjusted book value1 per share reached $49.89 and $66.46, respectively. These amounts now include net losses related to FG VIE consolidation of $0.06 per share on non-GAAP operating shareholder's equity, and $0.18 per share on non-GAAP adjusted book value.

Share repurchases totaled $116 million, or 3.3 million shares, in fourth quarter 2016, and $306 million, or 10.7 million shares, in FY 2016. On February 22, 2017, the Board of Directors authorized an additional $300 million of share repurchases.

Category:

Dateline:

Public Company Information:

NYSE:

AGO

"and, when combined with contributions from our international infrastructure and structured finance businesses, where we are the only bond insurer that continues to serve these markets, we produced the most new business in five years, even as interest rates reached historic lows."

Assured Guaranty Ltd. (NYSE:AGO) (AGL and, together with its
consolidated entities, Assured Guaranty or the Company) announced today
its financial results for the three-month period ended December 31, 2016
(fourth quarter 2016) and the year ended December 31, 2016 (FY 2016).

1 Starting in fourth quarter 2016, based on the U.S.
Securities and Exchange Commission (the SEC) 2016 Compliance and
Disclosure Interpretations on non-GAAP financial measures, the Company
will no longer adjust for FG VIE consolidation in its non-GAAP financial
measures. The comparable non-GAAP financial measures for prior periods
have been updated to reflect the revised calculation. The Company has
separately disclosed the effect of FG VIE consolidation that is now
included in its non-GAAP financial measures. Please see “Explanation of
Non-GAAP Financial Measures.” When a financial measure is described as
"operating," it is a non-GAAP financial measure.

Summary Financial Results

(in millions, except per share amounts)

Quarter Ended

Year Ended

December 31,

December 31,

2016

2015

2016

2015

Net income

$

197

$

429

$

881

$

1,056

Operating income(1)

139

130

895

710

Gain (loss) related to FG VIE consolidation

included in operating income

16

13

12

11

Net income per diluted share

$

1.49

$

3.03

$

6.56

$

7.08

Operating income(1) per diluted share

1.05

0.92

6.68

4.76

Gain (loss) related to FG VIE consolidation

included in operating income per diluted

share

0.12

0.09

0.10

0.07

Diluted shares(2)

131.7

141.5

134.1

149.0

Gross written premiums (GWP)

$

83

$

87

$

154

$

181

PVP(1)

85

76

214

179

Gross par written

5,643

4,344

17,854

17,336

Summary Financial Results (continued)

(in millions, except per share amounts)

As of

December 31, 2016

December 31, 2015

Amount

Per Share

Amount

Per Share

Shareholders' equity

$

6,504

$

50.82

$

6,063

$

43.96

Non-GAAP operating shareholders' equity(1)

6,386

49.89

5,925

42.96

Non-GAAP adjusted book value(1)

8,506

66.46

8,396

60.87

Gain (loss) related to FG VIE consolidation

included in non-GAAP operating shareholders'

equity

(7

)

(0.06

)

(21

)

(0.15

)

Gain (loss) related to FG VIE consolidation

included in non-GAAP adjusted book value

(24

)

(0.18

)

(43

)

(0.31

)

Common shares outstanding

128.0

137.9

________________________________________________

(1) Please see “Explanation of Non-GAAP Financial Measures” at the end
of this press release. The prior-year non-GAAP financial measures have
been updated to reflect the revised calculation as discussed in
“Explanation of Non-GAAP Financial Measures.”

(2) Diluted shares for generally accepted accounting principles (GAAP)
net income and non-GAAP operating income were the same.

“By effectively executing our core strategies of new business
production, capital management, acquisitions and loss mitigation,
Assured Guaranty achieved outstanding results in 2016. We achieved
strong GAAP results, as well as setting new highs in key metrics our
management uses to measure success, including operating income, non-GAAP
operating shareholders’ equity per share and non-GAAP adjusted book
value per share,” said Dominic Frederico, President and CEO.

“We continued to lead the U.S. municipal bond insurance industry in both
par and number of transactions insured,” he added, “and, when combined
with contributions from our international infrastructure and structured
finance businesses, where we are the only bond insurer that continues to
serve these markets, we produced the most new business in five years,
even as interest rates reached historic lows.”

Fourth Quarter Results

GAAP Financial Information

Net income for fourth quarter 2016 was $197 million, compared with net
income of $429 million for the three-month period ended December 31,
2015 (fourth quarter 2015). The decrease was primarily attributable to
lower fair value gains on credit derivatives, offset in part by higher
net earned premiums.

Except for credit impairment, the fair value adjustments of credit
derivatives in the insured portfolio are non-economic adjustments that
reverse to zero over the remaining term of the portfolio. Fair value
gains on credit derivatives were $74 million in fourth quarter 2016, and
were generated primarily by the run-off of credit derivative par and
price improvements on the underlying collateral. Fair value gains on
credit derivatives in fourth quarter 2015 were $428 million, mainly
driven by the settlement and termination of several credit derivative
transactions, as well as the termination of credit derivatives
referencing a distressed middle-market collateralized loan obligation
and a commercial mortgage-backed securitization.

Net earned premiums were $236 million in fourth quarter 2016, compared
with $192 million in fourth quarter 2015. The increase is due primarily
to higher accelerations, which offset the lower scheduled net earned
premiums due to the amortization of the legacy book of business.

Consolidated Statements of Operations (unaudited)

(in millions)

Quarter Ended

December 31,

2016

2015

Revenues:

Net earned premiums

$

236

$

192

Net investment income

117

112

Net realized investment gains (losses)

(24

)

(6

)

Net change in fair value of credit derivatives:

Realized gains (losses) and other settlements

(18

)

(53

)

Net unrealized gains (losses)

92

481

Net change in fair value of credit derivatives

74

428

Fair value gains (losses) on committed capital securities (CCS)

50

17

Fair value gains (losses) on FG VIEs

27

38

Other income (loss)

(10

)

(6

)

Total revenues

470

775

Expenses:

Loss and loss adjustment expenses (LAE)

112

106

Amortization of deferred acquisition costs

5

5

Interest expense

25

25

Other operating expenses

57

55

Total expenses

199

191

Income (loss) before income taxes

271

584

Provision (benefit) for income taxes

74

155

Net income (loss)

$

197

$

429

Economic Loss Development

Economic loss development in fourth quarter 2016 was $102 million,
primarily related to an increase in Puerto Rico expected losses and a
reduction in excess spread on certain first-lien U.S. residential
mortgage-backed securities (RMBS) exposures, which were partially offset
by a $94 million benefit due to an increase in discount rates.

Roll Forward of Net Expected Loss to be Paid (1)

(in millions)

Net Expected

Loss to be Paid

(Recovered) as

of September 30,

2016

Economic Loss

Development/

(Benefit)

Losses

(Paid)/

Recovered

Net Expected

Loss to be Paid

(Recovered) as

of December 31,

2016

Public finance

$

854

$

53

$

(3

)

$

904

U.S. RMBS:

Before representations and warranties

(R&W) payable (recoverable)

111

85

4

200

R&W payable (recoverable)(2)

37

(37

)

6

6

U.S. RMBS

148

48

10

206

Other structured finance

88

1

(1

)

88

Total

$

1,090

$

102

$

6

$

1,198

________________________________________________

(1) Economic loss development represents the change in net expected loss
to be paid attributable to the effects of changes in assumptions based
on observed market trends, changes in discount rates, accretion of
discount and the economic effects of loss mitigation efforts. Economic
loss development is the principal measure that the Company uses to
evaluate the loss experience in its insured portfolio. Expected loss to
be paid includes all transactions insured by the Company, whether
written in insurance or credit derivative form, regardless of the
accounting model prescribed under GAAP.

(2) The Company’s agreements with R&W providers generally provide that,
as the Company makes claim payments, the R&W providers reimburse it for
those claims; if the Company later receives reimbursement through the
transaction (for example, from excess spread), the Company repays the
R&W providers. When the Company projects receiving more reimbursements
in the future than it projects paying in claims on transactions covered
by R&W settlement agreements, the Company will have a net R&W payable.

New Business Production

New Business Production

(in millions)

Quarter Ended December 31,

2016

2015

GWP

PVP(1)

Gross Par

Written

GWP

PVP(1)

Gross Par

Written

Public finance - U.S.

$

70

$

72

$

5,465

$

42

$

45

$

3,652

Public finance - non-U.S.

9

9

107

43

27

567

Structured finance - U.S.

4

3

47

4

3

66

Structured finance - non-U.S.

0

1

24

(2

)

1

59

Total

$

83

$

85

$

5,643

$

87

$

76

$

4,344

________________________________________________

(1) Please see “Explanation of Non-GAAP Financial Measures” at the end
of this press release.

GWP include amounts collected upfront on new business written as well as
the present value of future premiums discounted at risk free rates on
new business written, and the effects of changes in the estimated lives
of transactions in the inforce book of business. In fourth quarter 2016,
GWP decreased 5% to $83 million compared with $87 million in fourth
quarter 2015, due primarily to lower non-U.S public finance GWP which
have long lead times and vary in volume from period to period, offset in
part by higher U.S. public finance GWP in the secondary market.

The increase in PVP was attributable primarily to a 60% increase in the
U.S. public finance sector, compared with fourth quarter 2015. The
increase in the U.S. public finance sector was due primarily to
secondary market PVP. During fourth quarter 2016, Assured Guaranty once
again guaranteed the majority of insured par issued. The average rating
of new business written in the U.S. public finance sector in fourth
quarter 2016 was A-.

Other Non-GAAP Financial Measures

Operating income was $139 million in fourth quarter 2016, compared with
operating income of $130 million in fourth quarter 2015. The increase in
operating income was due primarily to higher premium accelerations,
which were offset, in part, by scheduled lower credit derivative
revenues. The FG VIE consolidation included in operating income were
gains of $16 million and $13 million in fourth quarter 2016 and 2015,
respectively. As discussed in "Explanation of Non-GAAP Financial
Measures," in fourth quarter 2016, the Company revised its calculation
of non-GAAP measures, in response to the SEC's May 17, 2016 release of
updated Compliance and Disclosure Interpretations of the rules and
regulations on the use of non-GAAP financial measures (the May 2016
C&DIs), to include FG VIE consolidation in its non-GAAP measures.

Year-to-Date Results

GAAP Financial Information

Net income was $881 million for FY 2016, compared with $1,056 million
for the year ended December 31, 2015 (FY 2015). The decrease was
attributable primarily to lower fair value gains on credit derivatives,
offset in part by higher net earned premiums and lower loss and LAE.

Fair value gains on credit derivatives were $98 million in FY 2016, and
were generated primarily as a result of credit derivative terminations
in the U.S. RMBS and other sectors, run-off of credit derivative par,
and price improvements on the underlying collateral. Fair value gains on
credit derivatives in FY 2015 were $728 million, mainly driven by the
settlement and termination of several credit derivative transactions.

Net earned premiums were $864 million in FY 2016, compared with $766
million in FY 2015. The increase is due primarily to accelerations of
net earned premiums, which offset lower scheduled net earned premiums
due to the amortization of the legacy book of business.

Loss and LAE expense was $295 million in FY 2016, compared with $424
million in FY 2015. The expense in both FY 2016 and FY 2015 was due
primarily to changes in loss reserves on certain Puerto Rico exposures.

Consolidated Statements of Operations (unaudited)

(in millions)

Year Ended

December 31,

2016

2015

Revenues:

Net earned premiums

$

864

$

766

Net investment income

408

423

Net realized investment gains (losses)

(29

)

(26

)

Net change in fair value of credit derivatives:

Realized gains (losses) and other settlements

29

(18

)

Net unrealized gains (losses)

69

746

Net change in fair value of credit derivatives

98

728

Fair value gains (losses) on CCS

0

27

Fair value gains (losses) on FG VIEs

38

38

Bargain purchase gain and settlement of pre-existing relationships

259

214

Other income (loss)

39

37

Total revenues

1,677

2,207

Expenses:

Loss and LAE

295

424

Amortization of deferred acquisition costs

18

20

Interest expense

102

101

Other operating expenses

245

231

Total expenses

660

776

Income (loss) before income taxes

1,017

1,431

Provision (benefit) for income taxes

136

375

Net income (loss)

$

881

$

1,056

Economic Loss Development

Economic loss development for FY 2016 was $139 million, related
primarily to the increase in Puerto Rico expected losses, partially
offset by benefits recognized as a result of loss mitigation strategies
including the acceleration of claim payments as a means of mitigating
future losses on certain Alt-A transactions and the purchase of insured
bonds.

Roll Forward of Net Expected Loss to be Paid

(in millions)

Net Expected

Loss to be Paid

(Recovered) as

of December 31,

2015

Net Expected

Loss to be Paid

(Recovered) on

CIFG Portfolio

as of July 1,

2016

Economic Loss

Development/

(Benefit)

Losses

(Paid)/

Recovered

Net Expected

Loss to be Paid

(Recovered) as

of December 31,

2016

Public finance

$

809

$

42

$

269

$

(216

)

$

904

U.S. RMBS:

Before R&W payable

(recoverable)

488

(1

)

(108

)

(179

)

200

R&W payable

(recoverable)

(79

)

(21

)

17

89

6

U.S. RMBS

409

(22

)

(91

)

(90

)

206

Other structured finance

173

2

(39

)

(48

)

88

Total

$

1,391

$

22

$

139

$

(354

)

$

1,198

New Business Production

New Business Production

(in millions)

Year Ended December 31,

2016

2015

GWP

PVP(1)

Gross Par

Written

GWP

PVP(1)

Gross Par

Written

Public finance - U.S.

$

142

$

161

$

16,039

$

119

$

124

$

16,377

Public finance - non - U.S.

15

25

677

41

27

567

Structured finance - U.S.

(1

)

27

1,114

23

22

327

Structured finance - non-U.S.

(2

)

1

24

(2

)

6

65

Total

$

154

$

214

$

17,854

$

181

$

179

$

17,336

________________________________________________

(1) Please see “Explanation of Non-GAAP Financial Measures” at the end
of this press release.

In FY 2016, GWP decreased 15% compared with FY 2015 due primarily to a
decline in GWP in U.S. structured finance and non-U.S. public finance,
partially offset by an increase in U.S. public finance new business.

In FY 2016, PVP increased by approximately 20%, to $214 million,
compared with FY 2015, primarily due to an increase in secondary market
U.S. public finance new business.

Other Non-GAAP Financial Measures

Operating income for FY 2016 was $895 million, compared with operating
income for FY 2015 of $710 million. The increase in operating income was
primarily due to lower operating loss and LAE and higher premium
accelerations. This was offset in part by lower credit derivative
revenues. The FG VIE consolidation included in operating income were
gains of $12 million and $11 million, in FY 2016 and 2015, respectively.
As discussed in "Explanation of Non-GAAP Financial Measures," in fourth
quarter 2016, the Company revised its calculation of non-GAAP measures
in response to the May 2016 C&DIs, to now include FG VIE consolidation
in its non-GAAP measures.

On a per-share basis, shareholders' equity, non-GAAP operating
shareholders' equity and non-GAAP adjusted book value increased due to
the benefit of the acquisition of CIFG Holding Inc. and recurring
income, as well as the accretive effect of the share repurchase program
that has been in effect since January of 2013.

Common Share Repurchases

Summary of 2016 Share Repurchases

(in millions, except per share amounts)

Amount

Number of

Shares

Average Price

Per Share

2016 (January 1 - March 31)

$

75

3.0

$

24.69

2016 (April 1 - June 30)

60

2.3

25.73

2016 (July 1 - September 30)

55

2.1

26.83

2016 (October 1 - December 31)

116

3.3

35.09

2016

306

10.7

28.53

2017 (January 1 - February 23)

142

3.6

39.65

From 2013 through February 23, 2017, the Company repurchased 72.2
million common shares, representing 37% of the total shares outstanding
at the beginning of the repurchase program in 2013. On February 22,
2017, the Board of Directors (the Board) authorized an additional $300
million in share repurchases bringing the remaining authorization to
$407 million. These repurchases can be made from time to time in the
open market or in privately negotiated transactions.

As in the past, the Company's execution of its share repurchases is
contingent upon its available free cash and the capital position of the
parent company, market conditions, the maintenance of its strong
financial strength ratings and other factors. The repurchase program may
be modified, extended or terminated by the Board at any time. It does
not have an expiration date.

Consolidated Balance Sheets (unaudited)

(in millions)

As of

December 31, 2016

December 31, 2015

Assets

Investment portfolio:

Fixed maturity securities, available-for-sale, at fair value

$

10,233

$

10,627

Short-term investments, at fair value

590

396

Other invested assets

162

169

Total investment portfolio

10,985

11,192

Cash

118

166

Premiums receivable, net of commissions payable

576

693

Ceded unearned premium reserve

206

232

Deferred acquisition costs

106

114

Reinsurance recoverable on unpaid losses

80

69

Salvage and subrogation recoverable

365

126

Credit derivative assets

13

81

Deferred tax asset, net

497

276

Current income tax receivable

12

40

FG VIE assets, at fair value

876

1,261

Other assets

317

294

Total assets

$

14,151

$

14,544

Liabilities and shareholders' equity

Liabilities

Unearned premium reserve

$

3,511

$

3,996

Loss and LAE reserve

1,127

1,067

Reinsurance balances payable, net

64

51

Long-term debt

1,306

1,300

Credit derivative liabilities

402

446

FG VIE liabilities with recourse, at fair value

807

1,225

FG VIE liabilities without recourse, at fair value

151

124

Other liabilities

279

272

Total liabilities

7,647

8,481

Shareholders' equity

Common stock

1

1

Additional paid-in capital

1,060

1,342

Retained earnings

5,289

4,478

Accumulated other comprehensive income

149

237

Deferred equity compensation

5

5

Total shareholders' equity

6,504

6,063

Total liabilities and shareholders' equity

$

14,151

$

14,544

Explanation of Non-GAAP Financial Measures

To reflect the key financial measures that management analyzes in
evaluating the Company’s operations and progress towards long-term
goals, the Company discloses both financial measures determined in
accordance with GAAP and financial measures not determined in accordance
with GAAP (non-GAAP financial measures).

Financial measures identified as non-GAAP should not be considered
substitutes for GAAP financial measures. The primary limitation of
non-GAAP financial measures is the potential lack of comparability to
financial measures of other companies, whose definitions of non-GAAP
financial measures may differ from those of Assured Guaranty. Beginning
in fourth quarter 2016, the Company’s publicly disclosed non-GAAP
financial measures are different from the financial measures used by
management in its decision making process and in its calculation of
certain components of management compensation (core financial measures).
The Company had previously excluded the effect of consolidating FG VIEs
(FG VIE consolidation) in its calculation of its non-GAAP financial
measures of operating income, non-GAAP operating shareholders’ equity
and non-GAAP adjusted book value. Starting in fourth quarter 2016, based
on the May 2016 C&DIs, the Company will no longer adjust for FG VIE
consolidation. However, wherever possible, the Company has separately
disclosed the effect of FG VIE consolidation that is included in its
non-GAAP financial measures. The prior-year non-GAAP financial measures
have been updated to reflect the revised calculation.

Management and the Board use core financial measures, which are based on
non-GAAP financial measures adjusted to remove FG VIE consolidation, as
well as GAAP financial measures and other factors, to evaluate the
Company’s results of operations, financial condition and progress
towards long-term goals. The Company removes FG VIE consolidation in its
core financial measures because, although GAAP requires the Company to
consolidate certain VIEs that have issued debt obligations insured by
the Company, the Company does not own such VIEs and its exposure is
limited to its obligation under its financial guaranty insurance
contract. By disclosing non-GAAP financial measures, along with FG VIE
consolidation, the Company gives investors, analysts and financial news
reporters access to information that management and the Board review
internally. Assured Guaranty believes its presentation of non-GAAP
financial measures and FG VIE consolidation provides information that is
necessary for analysts to calculate their estimates of Assured
Guaranty’s financial results in their research reports on Assured
Guaranty and for investors, analysts and the financial news media to
evaluate Assured Guaranty’s financial results.

Many investors, analysts and financial news reporters use non-GAAP
operating shareholders’ equity, adjusted for FG VIE consolidation, as
the principal financial measure for valuing AGL’s current share price or
projected share price and also as the basis of their decision to
recommend, buy or sell AGL’s common shares. Many of the Company’s fixed
income investors also use this measure to evaluate the Company’s capital
adequacy.

Many investors, analysts and financial news reporters also use non-GAAP
adjusted book value, adjusted for FG VIE consolidation, to evaluate
AGL’s share price and as the basis of their decision to recommend, buy
or sell the AGL common shares. Operating income adjusted for the effect
of FG VIE consolidation enables investors and analysts to evaluate the
Company’s financial results as compared with the consensus analyst
estimates distributed publicly by financial databases.

The following paragraphs and tables define each non-GAAP financial
measure disclosed by the Company and describe why it is useful. A
reconciliation of the non-GAAP financial measure and the most directly
comparable GAAP financial measure is presented below.

Operating Income

Management believes that operating income is a useful measure because it
clarifies the understanding of the underwriting results and financial
conditions of the Company and presents the results of operations of the
Company excluding the fair value adjustments on credit derivatives and
CCS that are not expected to result in economic gain or loss, as well as
other adjustments described below. Management adjusts operating income
further by removing FG VIE consolidation to arrive at its core operating
income measure. Operating income is defined as net income (loss)
attributable to AGL, as reported under GAAP, adjusted for the following:

1) Elimination of realized gains (losses) on the Company’s investments,
except for gains and losses on securities classified as trading. The
timing of realized gains and losses, which depends largely on market
credit cycles, can vary considerably across periods. The timing of sales
is largely subject to the Company’s discretion and influenced by market
opportunities, as well as the Company’s tax and capital profile.

2) Elimination of non-credit-impairment unrealized fair value gains
(losses) on credit derivatives, which is the amount of unrealized fair
value gains (losses) in excess of the present value of the expected
estimated economic credit losses, and non-economic payments. Such fair
value adjustments are heavily affected by, and in part fluctuate with,
changes in market interest rates, the Company's credit spreads and other
market factors and are not expected to result in an economic gain or
loss.

3) Elimination of fair value gains (losses) on the Company’s CCS. Such
amounts are affected by changes in market interest rates, the Company's
credit spreads, price indications on the Company's publicly traded debt,
and other market factors and are not expected to result in an economic
gain or loss.

4) Elimination of foreign exchange gains (losses) on remeasurement of
net premium receivables and loss and LAE reserves. Long-dated
receivables and loss and LAE reserves represent the present value of
future contractual or expected cash flows. Therefore, the current
period’s foreign exchange remeasurement gains (losses) are not
necessarily indicative of the total foreign exchange gains (losses) that
the Company will ultimately recognize.

5) Elimination of the tax effects related to the above adjustments,
which are determined by applying the statutory tax rate in each of the
jurisdictions that generate these adjustments.

Summary Reconciliation of

GAAP Net Income to Operating Income (1)

(in millions)

Quarter Ended

Year Ended

December 31,

December 31,

2016

2015

2016

2015

Net income (loss)

$

197

$

429

$

881

$

1,056

Less pre-tax adjustments:

Realized gains (losses) on investments

(24

)

(5

)

(30

)

(27

)

Non-credit impairment unrealized fair value gains

(losses) on credit derivatives

68

400

36

505

Fair value gains (losses) on CCS

50

17

0

27

Foreign exchange gains (losses) on remeasurement of

premiums receivable and loss and LAE reserves

(12

)

(5

)

(33

)

(15

)

Total pre-tax adjustments

82

407

(27

)

490

Less tax effect on pre-tax adjustments

(24

)

(108

)

13

(144

)

Operating income

$

139

$

130

$

895

$

710

Gain (loss) related to FG VIE consolidation (net of

tax provision of $9, $7, $7 and $4) included in

operating income

$

16

$

13

$

12

$

11

________________________________________________

(1) The non-GAAP measures presented in the table above should not be
considered a substitute for financial results and measures determined or
calculated in accordance with GAAP. The prior-year non-GAAP financial
measures have been updated to reflect the revised calculation as
discussed above.

Operating Income Adjustments and Effect of FG VIE Consolidation

(in millions)

Quarter Ended December 31,

2016

Quarter Ended December 31,

2015

Operating

Income

Adjustments

(1)

Effect of FG

VIE

Consolidation

(2)

Operating

Income

Adjustments

(1)

Effect of FG

VIE

Consolidation

(2)

Adjustments to revenues:

Net earned premiums

$

—

$

(4

)

$

—

$

(5

)

Net investment income

—

(1

)

2

(23

)

Net realized investment gains (losses)

(24

)

—

(6

)

—

Net change in fair value of credit derivatives

64

—

301

—

Fair value gains (losses) on CCS

50

—

17

—

Fair value gains (losses) on FG VIEs

—

27

—

38

Other income (loss)

(13

)

0

(4

)

0

Total revenue adjustments

77

22

310

10

Adjustments to expenses:

Loss expense

(5

)

(3

)

(98

)

(10

)

Other operating expenses

—

—

1

—

Total expense adjustments

(5

)

(3

)

(97

)

(10

)

Pre-tax adjustments

82

25

407

20

Tax effect of adjustments

24

9

108

7

After-tax adjustments

$

58

$

16

$

299

$

13

________________________________________________

(1) The "Operating Income Adjustments" column represents the amounts
recorded in the consolidated statements of operations that the Company
removes to arrive at operating income.

(2) The "Effect of FG VIE Consolidation" column represents the amounts
included in the consolidated statements of operations and non-GAAP
operating income that the Company removes to arrive at the core
financial measures that management uses in certain of its compensation
calculations and its decision making process.

Operating Income Adjustments and Effect of FG VIE Consolidation

(in millions)

Year Ended December 31,

2016

Year Ended December 31,

2015

Operating

Income

Adjustments

(1)

Effect of FG

VIE

Consolidation

(2)

Operating

Income

Adjustments

(1)

Effect of FG

VIE

Consolidation

(2)

Adjustments to revenues:

Net earned premiums

$

—

$

(16

)

$

—

$

(21

)

Net investment income

8

(10

)

7

(32

)

Net realized investment gains (losses)

(29

)

—

(26

)

—

Net change in fair value of credit derivatives

49

—

512

—

Fair value gains (losses) on CCS

0

—

27

—

Fair value gains (losses) on FG VIEs

—

38

—

38

Bargain purchase gain and settlement of pre-

existing relationships

—

—

(37

)

2

Other income (loss)

(34

)

0

(13

)

0

Total revenue adjustments

(6

)

12

470

(13

)

Adjustments to expenses:

Loss expense

20

(7

)

(22

)

(28

)

Other operating expenses

1

—

2

—

Total expense adjustments

21

(7

)

(20

)

(28

)

Pre-tax adjustments

(27

)

19

490

15

Tax effect of adjustments

(13

)

7

144

4

After-tax adjustments

$

(14

)

$

12

$

346

$

11

________________________________________________

(1) The "Operating Income Adjustments" column represents the amounts
recorded in the consolidated statements of operations that the Company
removes to arrive at operating income.

(2) The "Effect of FG VIE Consolidation" column represents the amounts
included in the consolidated statements of operations and non-GAAP
operating income that the Company removes to arrive at the core
financial measures that management uses in certain of its compensation
calculations and its decision making process.

Management believes that non-GAAP operating shareholders’ equity is a
useful measure because it presents the equity of the Company excluding
the fair value adjustments on investments, credit derivatives and CCS,
that are not expected to result in economic gain or loss, along with
other adjustments described below. Management adjusts non-GAAP operating
shareholders’ equity further by removing FG VIE consolidation to arrive
at its core operating shareholders' equity and core adjusted book value.

Non-GAAP operating shareholders’ equity is the basis of the calculation
of non-GAAP adjusted book value (see below). Non-GAAP operating
shareholders’ equity is defined as shareholders’ equity attributable to
AGL, as reported under GAAP, adjusted for the following:

1) Elimination of non-credit-impairment unrealized fair value gains
(losses) on credit derivatives, which is the amount of unrealized fair
value gains (losses) in excess of the present value of the expected
estimated economic credit losses, and non-economic payments. Such fair
value adjustments are heavily affected by, and in part fluctuate with,
changes in market interest rates, credit spreads and other market
factors and are not expected to result in an economic gain or loss.

2) Elimination of fair value gains (losses) on the Company’s CCS. Such
amounts are affected by changes in market interest rates, the Company's
credit spreads, price indications on the Company's publicly traded debt,
and other market factors and are not expected to result in an economic
gain or loss.

3) Elimination of unrealized gains (losses) on the Company’s investments
that are recorded as a component of accumulated other comprehensive
income (AOCI) (excluding foreign exchange remeasurement). The AOCI
component of the fair value adjustment on the investment portfolio is
not deemed economic because the Company generally holds these
investments to maturity and therefore should not recognize an economic
gain or loss.

4) Elimination of the tax asset or liability related to the above
adjustments, which are determined by applying the statutory tax rate in
each of the jurisdictions that generate these adjustments.

Management uses non-GAAP adjusted book value, adjusted for FG VIE
consolidation, to measure the intrinsic value of the Company, excluding
franchise value. Growth in non-GAAP adjusted book value per share
adjusted for FG VIE consolidation (core adjusted book value) is one of
the key financial measures used in determining the amount of certain
long-term compensation elements to management and employees and used by
rating agencies and investors. Management believes that this is a useful
measure because it enables an evaluation of the net present value of the
Company’s in-force premiums and revenues net of expected losses.
Non-GAAP adjusted book value is non-GAAP operating shareholders’ equity,
as defined above, further adjusted for the following:

1) Elimination of deferred acquisition costs, net. These amounts
represent net deferred expenses that have already been paid or accrued
and will be expensed in future accounting periods.

3) Addition of the deferred premium revenue on financial guaranty
contracts in excess of expected loss to be expensed, net of reinsurance.
This amount represents the expected future net earned premiums, net of
expected losses to be expensed, which are not reflected in GAAP equity.

4) Elimination of the tax asset or liability related to the above
adjustments, which are determined by applying the statutory tax rate in
each of the jurisdictions that generate these adjustments.

The premiums and revenues included in non-GAAP adjusted book value will
be earned in future periods, but actual earnings may differ materially
from the estimated amounts used in determining current non-GAAP adjusted
book value due to changes in foreign exchange rates, prepayment speeds,
terminations, credit defaults and other factors.

(1) The non-GAAP financial measures presented in the table above should
not be considered a substitute for financial results and measures
determined or calculated in accordance with GAAP. The prior-year
non-GAAP financial measures have been updated to reflect the revised
calculation as discussed above.

Net Present Value of Estimated Net Future Credit Derivative Revenue

Management believes that this amount is a useful measure because it
enables an evaluation of the value of future estimated credit derivative
revenue. There is no corresponding GAAP financial measure. This amount
represents the present value of estimated future revenue from the
Company’s credit derivative in-force book of business, net of
reinsurance, ceding commissions and premium taxes, for contracts without
expected economic losses, and is discounted at 6%. Estimated net future
credit derivative revenue may change from period to period due to
changes in foreign exchange rates, prepayment speeds, terminations,
credit defaults or other factors that affect par outstanding or the
ultimate maturity of an obligation.

PVP or Present Value of New Business Production

Management believes that PVP is a useful measure because it enables the
evaluation of the value of new business production for the Company by
taking into account the value of estimated future installment premiums
on all new contracts underwritten in a reporting period as well as
premium supplements and additional installment premium on existing
contracts as to which the issuer has the right to call the insured
obligation but has not exercised such right, whether in insurance or
credit derivative contract form, which GAAP gross written premiums and
the net credit derivative premiums received and receivable portion of
net realized gains and other settlements on credit derivatives (Credit
Derivative Realized Gains (Losses)) do not adequately measure. PVP in
respect of financial guaranty contracts written in a specified period is
defined as gross upfront and installment premiums received and the
present value of gross estimated future installment premiums,
discounted, in each case, at 6%. For purposes of the PVP calculation,
management discounts estimated future installment premiums on insurance
contracts at 6%, while under GAAP, these amounts are discounted at a
risk free rate. Additionally, under GAAP, management records future
installment premiums on financial guaranty insurance contracts covering
non-homogeneous pools of assets based on the contractual term of the
transaction, whereas for PVP purposes, management records an estimate of
the future installment premiums the Company expects to receive, which
may be based upon a shorter period of time than the contractual term of
the transaction. Actual future net earned or written premiums and Credit
Derivative Realized Gains (Losses) may differ from PVP due to factors
including, but not limited to, changes in foreign exchange rates,
prepayment speeds, terminations, credit defaults, or other factors that
affect par outstanding or the ultimate maturity of an obligation.

Reconciliation of GWP to PVP(1)

(in millions)

Quarter Ended

December 31, 2016

Public Finance

Structured Finance

U.S.

Non - U.S.

U.S.

Non - U.S.

Total

GWP

$

70

$

9

$

4

$

0

$

83

Less: Installment GWP and other GAAP

adjustments(2)

(2

)

9

1

0

8

Plus: Financial guaranty installment

premium PVP

—

9

0

1

10

Plus: PVP of non-financial guaranty

insurance

—

—

0

—

0

PVP

$

72

$

9

$

3

$

1

$

85

Quarter Ended

December 31, 2015

Public Finance

Structured Finance

U.S.

Non - U.S.

U.S.

Non - U.S.

Total

GWP

$

42

$

43

$

4

$

(2

)

$

87

Less: Installment GWP and other GAAP

adjustments(2)

(3

)

43

2

(2

)

40

Plus: Financial guaranty installment

premium PVP

—

27

1

1

29

Plus: PVP of non-financial guaranty

insurance

—

—

0

—

0

PVP

$

45

$

27

$

3

$

1

$

76

Year Ended

December 31, 2016

Public Finance

Structured Finance

U.S.

Non - U.S.

U.S.

Non - U.S.

Total

GWP

$

142

$

15

$

(1

)

$

(2

)

$

154

Less: Installment GWP and other GAAP

adjustments(2)

(19

)

15

(4

)

(2

)

(10

)

Plus: Financial guaranty installment

premium PVP

0

25

1

1

27

Plus: PVP of non-financial guaranty

insurance

—

—

23

—

23

PVP

$

161

$

25

$

27

$

1

$

214

Year Ended

December 31, 2015

Public Finance

Structured Finance

U.S.

Non - U.S.

U.S.

Non - U.S.

Total

GWP

$

119

$

41

$

23

$

(2

)

$

181

Less: Installment GWP and other GAAP

adjustments(2)

(5

)

41

21

(2

)

55

Plus: Financial guaranty installment

premium PVP

0

27

18

1

46

Plus: PVP of non-financial guaranty

insurance

—

—

2

5

7

PVP

$

124

$

27

$

22

$

6

$

179

________________________________

(1) The non-GAAP financial measures presented in the table above should
not be considered a substitute for financial results and measures
determined or calculated in accordance with GAAP.

(2) Includes present value of new business on installment policies, GWP
adjustment on existing installment policies due to changes in
assumptions, any cancellations of assumed reinsurance contracts, and
other GAAP adjustments.

Conference Call and Webcast Information

The Company will host a conference call for investors at 8:00 a.m.
Eastern Time (9:00 a.m. Atlantic Time) on Friday, February 24, 2017. The
conference call will be available via live and archived webcast in the
Investor Information section of the Company's website at AssuredGuaranty.com
or by dialing 1-877-281-1545 (in the U.S.) or 1-412-902-6609
(International). A replay of the call will be made available one hour
after the conference call ends through May 24, 2017. To listen to the
replay, dial 1-877-344-7529 (in the U.S.) or 1-412-317-0088
(International), passcode 10101572.

Please refer to Assured Guaranty's December 31, 2016 Financial
Supplement, which is posted on the Company's website at assuredguaranty.com/investor-information/by-company/assured-guaranty-ltd,
for more information on the Company's financial guaranty portfolios,
investment portfolio and other items. The Company is also posting on the
same page of its website:

“Public Finance Transactions in 4Q 2016,” which lists the U.S. public
finance new issues insured by the Company in fourth quarter 2016, and

“Structured Finance Transactions at December 31, 2016,” which lists
the Company's structured finance exposure as of that date.

In addition, the Company is posting at assuredguaranty.com/presentations
the “December 31, 2016 Equity Investor Presentation.” Furthermore, the
Company's separate-company subsidiary financial supplements and its
Fixed Income Presentation for the current quarter will be posted on the
Company's website when available. Those documents will be furnished to
the Securities and Exchange Commission in a Current Report on Form 8-K.

Assured Guaranty Ltd. is a publicly traded (NYSE: AGO) Bermuda-based
holding company. Its operating subsidiaries provide credit enhancement
products to the U.S. and international public finance, infrastructure
and structured finance markets. More information on Assured Guaranty
Ltd. and its subsidiaries can be found at AssuredGuaranty.com.

Cautionary Statement Regarding Forward-Looking Statements

Any forward-looking statements made in this press release reflect the
Company's current views with respect to future events and financial
performance and are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Such statements
involve risks and uncertainties that may cause actual results to differ
materially from those set forth in these statements. For example,
Assured Guaranty's calculations of non-GAAP adjusted book value, PVP,
net present value of estimated future installment premiums in force and
total estimated net future premium earnings and statements regarding its
capital position and demand for its insurance and other forward-looking
statements could be affected by reduction in the amount of available
insurance opportunities and/or in the demand for Assured Guaranty's
insurance; rating agency action, including a ratings downgrade, a change
in outlook, the placement of ratings on watch for downgrade, or a change
in rating criteria, at any time, of AGL or any of its subsidiaries,
and/or of any securities AGL or any of its subsidiaries have issued,
and/or of transactions that AGL’s subsidiaries have insured;
developments in the world’s financial and capital markets that adversely
affect obligors’ payment rates, Assured Guaranty’s loss experience, or
its exposure to refinancing risk in transactions (which could result in
substantial liquidity claims on its guarantees); the possibility that
budget or pension shortfalls or other factors will result in credit
losses or impairments on obligations of state, territorial and local
governments and their related authorities and public corporations that
Assured Guaranty insures or reinsures; the failure of Assured Guaranty
to realize loss recoveries that are assumed in its expected loss
estimates; increased competition, including from new entrants into the
financial guaranty industry; rating agency action on obligors, including
sovereign debtors, resulting in a reduction in the value of securities
in Assured Guaranty's investment portfolio and in collateral posted by
and to Assured Guaranty; the inability of Assured Guaranty to access
external sources of capital on acceptable terms; changes in the world’s
credit markets, segments thereof, interest rates or general economic
conditions; the impact of market volatility on the mark-to-market of
Assured Guaranty’s contracts written in credit default swap form;
changes in applicable accounting policies or practices; changes in
applicable laws or regulations, including insurance, bankruptcy and tax
laws, or other governmental actions; the impact of changes in the
world’s economy and credit and currency markets and in applicable laws
or regulations relating to the decision of the United Kingdom to exit
the European Union; the possibility that acquisitions or alternative
investments made by Assured Guaranty do not result in the benefits
anticipated or subject Assured Guaranty to unanticipated consequences;
deterioration in the financial condition of Assured Guaranty’s
reinsurers, the amount and timing of reinsurance recoverables actually
received and the risk that reinsurers may dispute amounts owed to
Assured Guaranty under its reinsurance agreements; difficulties with the
execution of Assured Guaranty’s business strategy; loss of key
personnel; the effects of mergers, acquisitions and divestitures;
natural or man-made catastrophes; other risk factors identified in AGL's
filings with the U.S. Securities and Exchange Commission; other risks
and uncertainties that have not been identified at this time; and
management’s response to these factors. Readers are cautioned not to
place undue reliance on these forward-looking statements. These
forward-looking statements are made as of February 23, 2017, and Assured
Guaranty undertakes no obligation to update publicly or review any
forward-looking statement, whether as a result of new information,
future developments or otherwise, except as required by law.